Spotify, the music streaming business that provide listeners with an alternative to piracy, saw losses soar to £16.6m in its latest financial results.

Despite a rise in sales of advertising and subscriptions, the group reported that losses had spiralled in 2009, from £316,000 a year earlier. This was because of a huge rise in royalty payments and a hike in administration expenses. A spokeswoman said the company had focused on establishing the service and increasing the number of users last year.

"The groundwork laid in our launch year has been crucial to the significant achievements made in 2010. Further strengthening and expansion of the service remains our top priority," she added. The company is in the late stages of preparing to launch in the US.

Spotify offers free streaming for those willing to listen to advertisments, as well as a £9.99 a month premium product. Advertising sales rose from just over £2,000 in its first year, to £4.5m in 2009, the results revealed. Subscriptions rose from £380,000 to £6.8m, but only 250,000 of its 7 million users paid for the service.

Yet, the group plunged further into the red as the cost of sales – the royalties – rose from almost £410,000 to £18.8m. Administrative expenses rose from £284,000 to £8.2m.

As the number of employees has increased from three to 23, the company's wagebill has risen from £88,000 to just over £1m.